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HIGH COURT OF CALCUTTA
CHAKRABARTI, SARMA SARKAR
BIRLA JUTE MANUFACTURING CO. LTD. - Appellant
Versus
DULICHAND PRATAPMULL - Respondent
A. F. O. O. 36 Of 1952
Decided On : MARCH 5, 1953
ARBITRATION - Stay of suit - Contract for sale of jute - Validity of contract challenged - Arbitration clause - Severability - Construction - Jurisdiction of arbitrators - Discretion of Court - Conditional order.
Fact of the Case:
The appellant, Birla Jute Manufacturing Co. Ltd., entered into a contract with the respondent, Dulichand Protapmull, for the purchase of 250 bales of jute. The contract was subject to the Raw Jute (Central Jute Board and Miscellaneous Provisions) Ordinance, West Bengal Ordinance No. 17 of 1950. The respondent filed a suit for a declaration that the contract was void 'ab initio' and alternatively, for a declaration that the contract had become frustrated. The appellant applied for a stay of the suit under Section 34, Arbitration Act.
Finding of the Court:
The Court held that the dispute in the suit was as to the validity of the principal contract itself, and that such a dispute could not be within the jurisdiction of the arbitrators. The Court also held that the arbitration clause was not severable and could not have independent effect, as it related to the principal contract and thereby came under the mischief of Section 23, Contract Act. The Court further held that even assuming that the arbitration clause was severable, a dispute as to whether the contract was void was not comprised within the clause.
Issues: 1. Whether the dispute in the suit was within the jurisdiction of the arbitrators? 2. Whether the arbitration clause was severable and could have independent effect? 3. Whether a dispute as to whether the contract was void was comprised within the arbitration clause?
Ratio Decidendi: 1. A dispute as to the validity of a contract cannot be referred to arbitrators, when the arbitration agreement is contained in the very contract which is impugned, because decision of such a question by the arbitrators would involve a decision of whether the arbitration agreement from which they derive their authority is valid, which is in the nature of things impossible. 2. An arbitration agreement is not severable and cannot escape the effect of the prohibition contained in the Ordinance, because it relates to the principal contract and thereby comes under the mischief of Section 23, Contract Act. 3. A dispute as to whether the contract is void is not comprised within an arbitration clause, even if the clause is severable, because the parties were not thinking merely of the form of contract entered into by them, whether it was valid or not, but of a valid contract.
Final Decision: The appeal was allowed in part. The suit was to proceed for a decision, in the first instance, of the claim to the first two declarations asked for in the plaint. If it was held that there never was a valid contract between the parties, the suit would be decreed and would come to an end. If, however, it was held that the contract was valid, the rest of the suit would be stayed.
( 1 ) THIS is an appeal from an order of S. R. Das Gupta J. , dated 11/2/1952, by which the learned Judge dismissed the appellant's application under Section 34, Arbitration Act, and refused to stay a suit instituted by the respondent.
( 2 ) THE facts are as follows: On 8/1/1951, the appellant, Birla Jute Manufacturing Co. Ltd. , entered into a contract with the respondent, Dulichand Protapmull, for the purchase of 250 bales of jute, each weighing 400 lbs. , at Rs. 225/- per bale, the goods to be delivered free at the buyer's Mill Ghat for shipment within one month. The Sold Note was signed by a firm of brokers, named Jaichandial Dugar.
( 3 ) AT the relevant time, the Raw Jute (Central Jute Board and Miscellaneous Provisions) Ordinance, West Bengal Ordinance No. 17 of 1950, was in force. Section 6 (1) of that Ordinance required any person intending to enter into a contract for the sale of raw jute with the owner of a jute-mill to apply to the Central Jute Board,"specifying the quantity, quality and trade description of such jute and such other particulars in respect thereof, if any, as may be prescribed". Section 6 (2) provided that the Board"shall, after considering the application, select an owner of a jute-mill. . . . . . . . . with whom the seller shall enter into a contract for the sale. . . . . . . . . of raw jute within a date specified by the Board". Under Section 6 (3) (i) the applicant and the selected owner of a jute-mill were to enter into the contract within the date specified by the Board and the contract was to be"on such terms and conditions. . . . . . . . . as may be agreed upon between them, and in the event of there being no such agreement, as may be prescribed". Section 14 (1) authorised the State Government generally to make rules for carrying out the purposes of the Ordinance and Section 14 (2) provided that, in particular, such rules might provide for any of the matters which, under the Ordinance, were "required to be prescribed".
( 4 ) IN exercise of the powers conferred by Section 14, read with Section 6 (1) of the Ordinance, the State Government prescribed a Form for offers of baled jute which contained at the top a space marked as "messrs. . . . . . . . . . . . . . . ", obviously intended for the name of the offered and a space was marked at the bottom for his signature. The Form contained a number of columns, one of which bore the heading 'delivery'. The form of contract, prescribed under Section 14, read with Section 6 (3) (i), did not mention the period of delivery and left the relevant space blank. But Rule 12 of the Rules framed under Section 14 (1) provided that the "delivery period for all offers accepted by the Board and directed to the mills shall be one month from the date of the offer". The contract form, which was a form for a Sold Note, contained at the top the words, "we have this day sold by your order and for your account to" and at the bottom the words "seller's Brokers".
( 5 ) THE offer in the present case was made on 2-1-1951 and it was made by Messrs. Jaichandial Dugar. The form bore their name at the top and at the bottom it was signed by them. It was an offer of a composite kind, comprising six separate quantities of jute, each of 1250 maunds but not all of the same kind or of the same price. Under each of the 1250 maunds, the name of the seller was shown. One such name was that of the respondent, under the entry "1250 maunds, Mill Reds 2/3 at Rs. 225/- per bale". There was another entry in the same terms over the name of another seller, but without the figures "2/3".
( 6 ) ON 5-1-1951, the Central Jute Board directed an offer of "1250 mds. , Mill Reds at Rs. 225/-" to the appellant company. To the communication addressed to Jaichandial Dugar as brokers, by which that was done, occurred the words 'one month', which was obviously the period of delivery, because a note at the bottom said that if the broker failed to deliver the jute within the specified t
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